My Perfect Mortgage
How to Use Home Equity Loan to Flip a House
6 minute read
May 30, 2023

Are you a homeowner thinking of getting into house flipping? You can use the valuable equity you’ve built up over the years the fund a fix and flip.

Using your home equity to flip a house is a common method real estate investors use to finance their investments and it comes with big advantages.

Instead of trying to meet a fix and flip lender’s requirements, you simply qualify for a much easier home equity line of credit (HELOC).

Submit your home equity details to get started.

What’s in this article?

Can you use a HELOC to flip a house?
The process
HELOC cost vs fix and flip
HELOC-for-flip risks
HELOC vs fix and flip requirements
Should you use a HELOC or fix and flip loan?

Can you get a line of credit on an investment property to flip a separate home?

One of the biggest benefits of a home equity line of credit is its flexibility.

Similar to a home equity loan, a HELOC can be used on anything, even on an investment property to flip, or fix and rent, a separate home. However, you’ll need to find a lender that offers HELOCs for investment properties, preferably ones that let you access most or all of your home equity.

Using a home equity line or loan to flip a house: The process

Many lenders offer HELOCs or home equity loans that you can easily use to fund your first flip.

Here are the general steps to using a home equity loan to flip a house:

  • Decide how much you want to borrow: Most lenders only allow you to borrow 80% to 100% of the equity in your home with a HELOC or home equity loan. For example, if your home is worth $500,000 and you owe $200,000 on your mortgage, that means you have $300,000 worth of equity. In this example, you could take out $200,000-$300,000 depending on the lender Your goal is to get a home equity loan for the entire cost of the property acquisition plus rehab costs.
  • Make sure you qualify: You’ll need a good credit score for most HELOCs, sufficient income, reliable payment history, and a low debt-to-income (DTI) ratio.
  • Shop around and compare lenders: Get quotes from multiple HELOC lenders.
  • Apply for the loan: Most HELOC lenders offer easy online or over-the-phone applications.
  • Get approval and funding: The lender can usually fund a HELOC quickly.  the lender will disburse the funds, either as a line of credit to use as you need or a lump sum payment.
  • Buy the property: Draw just enough money to acquire the property (hopefully at a below-market price). You pay interest only on what is drawn on the HELOC so don’t pull repair funds out until you’re ready to start renovations.
  • Draw renovation funds as you go: Pay for repairs as you go, keeping your HELOC balance (therefore interest charges) as low as possible.
  • Market and sell: Once the renovations are complete, hire a local real estate agent to help you set a price and market the home. Hopefully, you sell for a nice profit.
  • Repay the loan: After you sell the property, you can use these funds to pay down your HELOC.
  • Do it again: Since HELOCs usually come with open draw periods of 10 years, you can fix and flip multiple homes by purchasing, renovating, and selling each home, paying down but not closing the HELOC each time.
Find a HELOC lender now.
  • Approval in 5 minutes. Funding in as few as 5 days
  • Borrow $20K-$400K
  • Consolidate debt or finance home projects
  • 640+ credit
  • 85% max loan-to-value (LTV)
  • *We may be compensated if you use this partner’s services through this link
Park Place Finance
  • Close In Days
  • No Income/Employment Verif.
  • First-time Investors Okay
  • Available In 48 states
viva capital group
  • $50k-$5M
  • 6-24 Month Terms
  • 620 Min. FICO
  • Up to 70% ARV

Which costs more: a home equity loan or a fix-and-flip loan?

Fix-and-flip loans are almost always more expensive than home equity loans or lines of credit.

They have higher interest rates due to their riskier nature. Whereas you might find a HELOC matching the current prime rate (8.25% at the time of this writing), a fix and flip loan will run 10% on the low end.

But interest rates are just the start.

Fix-and-flip loans come with off-the-chart loan fees compared to HELOCs. You may even find a zero-closing-cost HELOC, but fix and flip loans require one to four points upfront. On a $200,000 loan, a fix and flip loan can cost up to $8,000 upfront. And that doesn’t even include appraisal, processing, and other lender fees.

You should also expect a higher monthly payment on a fix-and-flip loan compared to a home equity line of credit. You pay interest only for either option. But the higher fix and flip rate will mean a higher payment.

While fix-and-flip loans may be more expensive, they are designed specifically for house-flipping projects and provide funding for the property's purchase, renovation, and sale. They are still a great product for those without adequate primary home equity to cover the entire project.

What are the risks of using a home equity loan to flip a house?

A home equity loan may cost less than an out-of-pocket investment, but there are risks when using a home equity loan to flip a house.

  • Home equity loans use your home as collateral for the loan. This means that if you can’t repay what you borrowed and default on the loan, the lender could take your current home.
  • Home values could decline. If the market experiences a downturn, you could owe more than your current home is worth including your primary mortgage plus your HELOC.
  • You could waste funds without a clear plan. Home equity loans and lines can disperse funds in one large payment. If you use the proceeds without a clear plan, you may struggle to generate a return on your investment.
  • HELOC rates are directly tied to the prime rate, which in turn is tied to the federal funds rate. If the Federal Reserve keeps raising rates, your HELOC rate rises at the same pace.

HELOC loan requirements vs fix-and-flip loan requirements

The requirements for a HELOC and a fix-and-flip loan can vary depending on the lender and specific loan terms. Here are some general requirements for each type of loan.

HELOC requirements:

  • Have at least 20-30% current equity in your home
  • A credit score of at least 680
  • A DTI of 43% or lower
  • Proof of income
  • Money to cover closing costs and lender fees
  • Reliable payment history

Fix-and-flip loan requirements:

  • You’ll need a property evaluation to determine its current condition and potential after-repair value (ARV)
  • A down payment of at least 20% of initial acquisition
  • A credit score of at least 640-660
  • A plausible exit plan
  • Detailed renovation plans, budget, and schedule
Check terms for fix and flip loans.
  • Close In Days
  • No Income/Employment Verif.
  • First-time Investors Okay
  • Available In 48 states
  • $50k-$5M
  • 6-24 Month Terms
  • 620 Min. FICO
  • Up to 70% ARV

Should you get a home equity loan or home equity line of credit to flip a home?

HELOCs and home equity loans both have advantages and disadvantages.

A home equity loan offers a fixed interest rate and monthly payments won’t change over the life of the loan. But home equity loans are paid out in one lump sum, so you’ll pay interest on the entire amount until you sell the flip and pay it back.

With a HELOC, you pay interest only on the amount borrowed at the time. Your lender may also offer interest-only payments during the draw period, but rising interest rates could increase your monthly payment, and lines of credit make it easy to overspend.

Fund a profitable flip with your own home equity

Using a home equity loan to flip a house can provide the necessary financing for your fixer-upper, but it's important to recognize the risks.

First, you'll need to find an investment property lender and meet their requirements.

Remember that home equity loans aren't specifically for real estate investors, unlike fix-and-flip loans, which are specifically designed for these types of projects.

We’ll find a HELOC or fix and flip lender near you.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.